Being a parent is a fulfilling experience. But it’s also an expensive one.
As a parent, the thought of paying for your child’s college education may stir up some major anxiety. College isn’t cheap, and it’s difficult to afford without borrowing student loans.
If you don’t want your child to bear the burden of student debt, you should consider opening a 529 plan.
A 529 plan is an account that you as a parent (or legal guardian or loved one) can use to save for your child’s education.
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- 529 savings plans are tax-advantaged accounts that can be used to pay for your child’s education expenses.
- Funds aren’t limited to college and can be applied to private school tuition, vocational or trade schools, or apprenticeships.
- If your child decides to not go to college, the funds will either be taxed or you can roll over up to $35,000 into a Roth IRA.
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529 Basics
529 savings plans are state-sponsored tax-advantaged accounts to be used for qualified education expenses.They’re a creative way to save for your child’s future, specifically their education.
The funds can be used at most accredited colleges or universities. Qualified education expenses range from college tuition and fees to housing, meal plans, books, and supplies.
529 plans aren’t limited to only college though. They can also be applied to apprenticeships and vocational or trade schools, and as of 2026, up to $20,000 per year can go toward K-12 costs — not just private-school tuition, but also curriculum materials, tutoring, standardized-test fees, and more. (Some states haven't adopted the expanded list for state-tax purposes, so check your own state's rules.)
And as of 2019, you can also use 529 plans to pay for up to $10,000 of student loans if your child does end up borrowing.
RELATED: Parent PLUS Loans: What to Know
Tax Advantages of 529 Plans
One of the biggest advantages (besides stashing cash for college) is the tax benefits that come with a 529 plan.
The contributions to a 529 plan are made with after-tax dollars. Plus, there is no annual limit to how much you can contribute.
- Growth is tax-deferred: You won't pay any federal tax on the capital gains, investment income, or dividends your 529 earns — as long as the money goes toward qualified education expenses. (If you withdraw earnings for something else, they're taxed and hit with a 10% penalty.) A lot of states with an income tax will also let you deduct your contributions or claim a tax credit.
- Withdrawals are tax-free: You don’t have to pay taxes on the withdrawals from a 529 plan that are used to pay for qualified education expenses.
- Gift tax provisions: The contributions count as gifts, so they can bump into gift-tax rules — but there's an annual exclusion of $19,000 per person (for 2025 and 2026). You can even front-load five years at once, contributing up to $95,000 in a single year without triggering gift tax.
How To Open a 529 Plan
Every state (except Wyoming) offers a 529 plan. But you aren’t limited to opening the plan in your state. You have the flexibility to choose which state, depending on which plan benefits you. Things like fees, investment options, and tax benefits can be used to decide which plan is best for you.
You will select between a savings plan and a prepaid plan. A savings plan allows you to invest money in the market and a prepaid plan allows you to purchase a portion of tuition at a school.
529 accounts can be opened online, with a broker or financial institution, and can typically be funded with very little money upfront. If you find it all overwhelming, you can also hire a financial advisor.
Many plans will allow automatic contributions from a bank account for convenience.
Contribution limits for 529 plans
There are no annual contribution limits for 529 savings plans. This is different from other tax-advantaged products like IRAs and 401(k)s.
But while you aren’t capped on an annual basis, there are maximum contribution balances per beneficiary. This means you are capped at how much you can contribute over the life of the account. Limits range from roughly $235,000 to nearly $600,000, depending on the state.
The limit is based on an estimate of future costs of education in the state where the plan is set up. Usually, this estimate includes a rather highly-priced bachelor's degree — as an FYI.
So, if you want a higher contribution limit you may want to look at opening a 529 plan where college is the most expensive on the whole.
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529 Plans Per State
| State | Plan Name | Tax Benefit for In-State Contributors? | Minimum Contribution |
| Alabama | CollegeCounts | Yes | $0 |
| Alaska | Alaska 529 | No | $25 |
| Arizona | AZ529 | Yes | as little as $15/month |
| Arkansas | Arkansas Brighter Future 529 Plan | Yes | $25 |
| California | ScholarShare 529 | No | $0 |
| Colorado | CollegeInvest | Yes | $0 – $25, depends on plan |
| Connecticut | Connecticut Higher Education Trust (CHET) | Yes | $0 |
| Delaware | DE529 | Yes | $0 |
| District of Columbia | DC College Savings Plan | Yes | $25 |
| Florida | Florida Investment 529 Plan | No | $25 ($0 with payroll) |
| Georgia | Path2College 529 Plan | Yes | $0 |
| Hawaii | HI529 | No | $15 |
| Idaho | IDeal 529 | Yes | $25 |
| Illinois | Bright Start 529 Plan | Yes | $0 |
| Indiana | Indiana529 Direct | Yes | $10 |
| Iowa | ISave 529 | Yes | $25 |
| Kansas | Quest529 | Yes | $0 |
| Kentucky | KY Saves 529 | No | $0 |
| Louisiana | Louisiana's 529 START | Yes | $10 |
| Maine | NextGen 529 | Yes | $25 |
| Maryland | Maryland 529 | Yes | $25 |
| Massachusetts | U.Fund 529 College Investing Plan | Yes | $0 |
| Michigan | Michigan Education Savings Program (MESP) | Yes | $25 |
| Minnesota | MNSaves | Yes | $25 |
| Mississippi | MACS — Mississippi Affordable College Savings Program | Yes | $25 |
| Missouri | MOST 529 | Yes | $0 |
| Montana | Achieve Montana | Yes | $25 |
| Nebraska | NEST 529 | Yes | $0 |
| Nevada | NV529 Plans | No | Depends on plan (6 choices) |
| New Hampshire | UNIQUE College Investing Plan; Fidelity Advisor 529 Plan | No | $0 |
| New Jersey | NJBEST | Yes | $25 |
| New Mexico | The Education Plan | Yes | $0 |
| New York | New York’s 529 College Savings Program | Yes | $0 |
| North Carolina | NC 529 | No | $0 |
| North Dakota | College SAVE | Yes | $25 |
| Ohio | Ohio's 529 College Advantage | Yes | $25 |
| Oklahoma | Oklahoma 529 | Yes | $25 |
| Oregon | Embark | Yes | $25 |
| Pennsylvania | PA 529 | Yes | $0 |
| Rhode Island | CollegeBound Saver | Yes | $0 |
| South Carolina | Future Scholar | Yes | $0 |
| South Dakota | CollegeAccess 529 | No | $250 |
| Tennessee | TNStars | No | $25 |
| Texas | Texas College Savings Plan | No | $25 |
| Utah | my529 | Yes | $0 |
| Vermont | VT529 | Yes | $25 |
| Virginia | Invest529 | Yes | $10 |
| Washington | WA529 Invest | No | $0 |
| West Virginia | SMART529 | Yes | $0 |
| Wisconsin | Edvest 529 | Yes | $25 |
| Wyoming | No plan available. | NA | NA |
What if My Child Decides to Not Go to College?
A big concern many parents have with opening a 529 plan is whether or not their child will even want to go to college.
College isn’t for everyone, and the thought of paying penalties and taxes on the withdrawals may be unsettling.
Fortunately, recent tax law recognizes this. As of 2024, your child can jumpstart their retirement and roll up to $35,000 of their 529 plan into a Roth IRA. This is a huge advantage and means your child will not have to pay taxes on their distributions.
Keep in mind that rolling distributions into a Roth IRA may need to be strategically done since the annual limits for IRAs still apply.
If you choose to directly withdraw the funds, or you have more than $35,000 saved, you can change the beneficiary to another family member, continue saving the funds if there is a change of heart, or withdraw the money.
If you choose to withdraw, you will have to pay a 10% penalty plus taxes on earnings.
FAQs
What is the downside of 529 accounts?
The main downside of a 529 savings plan is that you will incur a 10% penalty and have to pay regular income tax on the earnings if the funds are used for non-qualified education expenses.
Some tax deductions are also limited to residents of the state sponsoring the plan, regardless of if your plan is opened in that state.
Additionally, there is investment risk as the funds in the plan are subject to regular market fluctuation. There is also usually limited flexibility in investments, meaning you have to pick from a pre-set investment portfolio.
What happens to a 529 if your kid doesn’t go to college?
If your child decides to not go to college, you can change the beneficiary to another family member, continue to save the funds for a possible future education, or withdraw the funds (and pay penalties and taxes).
TL;DR: Using 529 College Savings Plans
529 savings plans are fairly flexible, provide some major tax benefits, and have high aggregate contribution limits. If your child doesn’t use the funds for education, you can jump-start their retirement by putting a portion of the funds into a Roth IRA.
These plans are a great way to secure your child’s financial future, by helping them to avoid student loans and save thousands on student loan interest.
For more tips on preparing your family for the future, check out these episodes of the Erika Taught Me podcast:
- How To Set Your Kids Up Financially
- How To Invest for Beginners (Step by Step)
- How to Become Better With Money
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